Until today, I don’t believe I’ve ever seen any online bank offer a bump up CD. A bump up CD is a certificate of deposit that gives you the option to increase the current rate of your CD to the published rate, “bumping” it up. If you remember my attempt at being cute with the Certificate of Deposit Zoo, it was the giraffe.

The biggest risk with long term CDs is inflation risk. If you open a two-year CD at 2% and inflation is 3% a year, you’ve effectively lost 1% of purchasing power on that money each year. While it’s better than being in a checking account earning 0%, thus losing 3% each year, your money is “stuck” unless you want to pay a penalty.

Bump up CDs take away some of that risk because they let you bump up the CD’s interest rate one time. Does that make a bump up CD a sure thing? No, but if you have the choice between two long term CDs with identical interest rates, it’s obvious that the CD with a bump up option is superior.
Here’s the email I received from Ally:

When your current Ally CD matures, we want you to reinvest with confidence. And now, thanks to a flexible new option in our 2-Year CD, you can.

The Ally 2-Year CD features a new one-time rate increase. Now you not only get a great rate—you get the opportunity to move to a better one if our rates go up during the 2-year term. All you need to do is call us.

Of course, our 2-Year CD comes with Ally’s Ten Day Best Rate Guarantee. When you fund your CD within ten days of opening or renewing your Ally account, you automatically get the best rate we offer during that time period.

While it seems to imply that you have to renew a CD, that’s not the case. All 2 year CDs have the bump up option. How does this compare with other long term CD rates? Bankrate says that the average rate on a 3-year CD is 2.208% (as of today), so Ally’s rate is quite competitive especially when you consider it has a bump up option.

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12 Responses to “Ally Bank Offers 2-Year Bump Up CDs”

As CDs go today, this seems like a good investment, if you are sticking to CDs. CDs are conservative investments, but after the last few years who can argue with someone who wants to go that route.

Remember they have raised the FDIC insurance to $250K and CDs will fall in that category if purchase from an FDIC insured institution. They reason I state this is sometimes you can find more favorable rates on jumbo CDs if you have that kind of cash.

I think one thing the past few years has taught me is that economic theory and economic reality can be very different. I think it is sound theory that rates will go up but the reality is that they are going the opposite. I really don’t know what to think about it.

Well, I think the thing is they are trying to ward off the possibility of inflation taking off. Which I suppose with all the extra money being pumped into the economy we are at a real risk of having. It sounds like they would rather play it safe with rates and that the last thing they want to do is raise rates too quickly and set off a period of steep inflation.

Then again, I have no idea what I am talking about when it comes to these macro-economic details. This is just what it comes off as to me.

Another nice CD change that Ally has done is to reduce the early withdrawal penalty. It used to be 180 days of interest for long-term CDs. It’s now only 60 days of interest which is way below average. A small early withdrawal penalty can reduce the cost if rates shoot up and you break the CD to get a better rate with a new CD.

On the surface banks do wish to retain deposits to be assured deposits are not going anywhere; however, if that were really true, why do banks always apply a lower interest rate if one fails to follow-up within 10 days of CD maturity?

The only reason they agree to bump up rate is it is a “good sales pitch” to bring in new accounts and not necessarily to lock me in as a long time satisfied customer. Else why does the bank “scramble” with better rates whenever I opt to move a jumbo CD because better rate available elsewhere.

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